Problem 1-32 (LO 1-3, 1-4, 1-6) On January 1, 2017 Stream Company acquired 26 pe

Question

Problem 1-32 (LO 1-3, 1-4, 1-6) On January 1, 2017 Stream Company acquired 26 percent of the outstanding voting shares of Q-Video, Inc, for $652.000. Q-Video manufactures specialty cables for computer monitors. On that date, Q-Video reported assets and liabilities with book values of $2.0 million and $638,000, respectively A customer list compiled by Q-Video had an appraised value of $210,000, although it was not recorded on its books. The expected remaining life of the customer list was five years with a straight-line amortization deemed appropriate. Any remaining excess cost was not identifiable with any particular asset and thus was considered goodwill. Q-Video generated net income of $342,000 in 2017 and a net loss of $136,000 in 2018. In each of these two years, Q-Video declared and paid a cash dividend of $12,000 to its stockholders During 2017, Q Video sold inventory that had an original cost of $117,600 to Stream for $168,000. Of this balance, $84,000 was resold to outsiders during 2017, and the remainder was sold during 2018, In 2018, Q Video sold inventory to Stream for $176,000. This inventory had cost only $132,000. Stream resold $96,000 of the inventory during 2018 and the rest during 2019 For 2017 and then for 2018, compute the amount that Stream should report as income from its investment in Q-Video in its external financial statements under the equity method. (Enter your answers in whole dollars and not in millions. Do not round intermediate calculations.) 2017 2018 of of

Explanation / Answer

Solution:

Computing the Amount that Stream Should Report as Income from its Investment in Q-Video in its External Financial Statements under the Equity Method:

Equity Income 2017:

Equity Income (Loss - 2018):

Schedule - 1:

Schedule 2:

Schedule 3:

Basic equity accrual ($342,000 * 26%) $88,920 Amortization (see Schedule 1) ($10,920) Deferral of intra-entity gross profit (see Schedule 2) ($6,552) Equity Income - 2017 $71,448

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